The Trouble with Medicaid

Building on the failures of the welfare state will do more harm than good in Louisiana

A key feature of President Obama’s Affordable Care Act (“ACA”) was the expansion of Medicaid throughout the states. When the United States Supreme Court ruled on a challenge to the constitutionality of the ACA, it held that the federal government could not require states to expand Medicaid. Thus, states have been deciding whether or not to participate in this expansion.

Governor Bobby Jindal elected not to expand Medicaid and now faces a legislative challenge that would require Louisiana to participate in the expansion. This legislation is problematic for several reasons:

The High Cost to Taxpayers

Those who advocate for expanding government’s role in our health care have a long history of citing dubious figures to support their positions. This tendency dates back to the original expansion of the welfare state in 1967. At that time, Congress projected that Medicare would cost taxpayers $12 billion in 1990. In fact, Medicare cost $110 billion in 1990. It now costs $550 billion and in 10 years will cost $1.1 trillion.

Further, the ACA was supposed to have cost taxpayers less than $1 trillion, but the Congressional Budget Office now estimates its cost at $1.76 trillion. It can be safely said that government programs typically end up costing taxpayers more – not less – than originally estimated over time. There is no reason to think it will be any different this time around.

In response, supporters will resort to touting the alleged economic benefits of Medicaid expansion. This is a classic case of assuming that politicians and bureaucrats will make optimum use of taxpayer dollars. Experience with the “Stimulus Package” and other Keynesian projects over the years tell us otherwise.

Beware the Federal “Bait and Switch”

Expansion advocates have claimed that the federal government will give states leeway to innovate and introduce market principles into their Medicaid programs. But the federal government has only recently shown signs of such flexibility, and this is because they understand that states cannot be dragooned into expansion.

Only the naïve policymaker would assume this newfound flexibility will remain in effect for long. Whatever promises the federal government makes regarding the ability of states to innovate are likely to evaporate over time. Supporters of President Obama’s health care law consistently advocate for more central planning, not less, so there is no reason to expect states to retain meaningful independence in the long run.

If the administration supported market principles and state autonomy, the ACA would be a very different piece of legislation. In fact, it is designed to continue the unfortunate trend towards greater federal control of our health care. Legislators should remember that when “you take the king’s shilling you become the king’s man.” More federal dollars will ultimately lead to more federal control.

Building on the Failures of the Welfare State

A strong argument can be made that the radical expansion of the welfare state that took place under President Lyndon Johnson has been the single biggest policy failure of the past 50 years. Not only have these programs grown far beyond what anyone imagined in terms of cost and participation rates, but many of the problems they sought to solve remain as intractable as ever.

For example, many studies show that Medicaid patients have worse health outcomes than people with no insurance at all. Because reimbursement rates are so low, many doctors elect not to participate in Medicaid. So unlike patients with private insurance, Medicaid patients often go untreated until their illnesses have reached a critical point.

Expanding Medicaid will only make this problem worse. Not only that, but some of the newly eligible will elect to drop their existing private insurance plans for the lure of “free” health care. This is one of many examples of the perverse incentives that make our welfare programs so damaging.

Another of the welfare state’s destructive features is to encourage a cycle of dependence. Many programs, Medicaid included, serve as disincentives to work because a higher income will result in a loss of eligibility. So welfare becomes a way of life.

To make matters worse, these programs and their incentives have contributed to the demise of marriage and the traditional family unit, to the detriment of the children that are raised in unstable environments, lacking the demonstrable benefits of a two-parent family. These social costs cannot be fully captured by empirical data but they may well outweigh any of the other costs and benefits typically referenced in the debate over expanding Medicaid.

Ensuring that all Americans have access to health care is a worthy goal. But policies that are built on faulty principles are certain to have bad outcomes. This program, like many of the welfare programs of the 1960s, is in desperate need of an overhaul. Rejecting the expansion of Medicaid will increase the likelihood that such an overhaul will take place in the foreseeable future.

Conclusion

Proponents of expanding Medicaid often criticize opponents for failing to offer viable alternatives. This is not true. While states are constrained in their ability to implement sensible health care reforms, there are a number of states that are exploring better options.

A Florida legislator recently introduced “Florida Health Choices Plus”, which would expand coverage, tailor benefits to different patient groups, and offer the option of a health spending account based upon the Healthy Indiana model. The plan utilizes free market forces and does not rely on federal dollars to operate.

Rhode Island and Indiana also have implemented meaningful reforms that did not require increased federal funding. Indiana has introduced cost-sharing measures in an effort to incentivize personal responsibility. These specific reforms may or may not be the right approach for Louisiana, but it highlights the ability of states to do more than take the federal bait and hope for the best.

Louisiana legislators may not have the power to fix what is wrong with the federal welfare state. But they can refuse to expand it in their own backyards. Our nation can and will find a better way to make health care more accessible to all Americans. Legislators should not short-circuit this effort by falling prey to the blandishments of federal largesse.